Will Gwadar go the way of Hambantota? Why Chinese loans to Pakistan are sparking takeover fears along the economic corridor

27 December 2017 - 215   - 0

Earlier this month, Sri Lanka officially handed over its strategically important port of Hambantota to China on a 99-year lease, after Colombo failed to repay its debts to Beijing. The move has raised concerns in Pakistan that its Gwadar port, built as part of a trade corridor with China, could meet with the same fate.
China is spending more than US$55 billion on different projects in Pakistan. Although the project agreements have yet to be publicised despite public pressure, experts claim that a major part of this amount is comprised of loans.

This could lead to a situation similar to Sri Lanka’s, and it is feared that Pakistan could end up handing over control of Gwadar port and other assets to China.

These fears are not unfounded, as proved by the developments around the 7th Joint Cooperation Committee meeting of the China-Pakistan Economic Corridor, a key segment of China’s Belt and Road Initiative.

First, Pakistan pulled back from receiving US$14 billion in Chinese funding for the Diamer-Basha dam. Islamabad withdrew its request to include the dam in the framework of the economic corridor because of strict conditions from China, including demands for transfer of ownership.

Secondly, China’s demand that the renminbi be allowed to be used as legal tender in Gwadar city has been rejected for now, amid severe criticism in Pakistan that it would be akin to making Gwadar an economic colony of China.
Once these demands were rejected, China also took some steps not liked by Pakistan. Just days after the joint cooperation meeting in November, China suspended funding for three key highways in northern and western Pakistan, until “new guidelines” were received from Beijing. This move was seen as an attempt by China to gain leverage for its demands.
Also, the revenue sharing and control agreement for Gwadar port shows that, for the next 40 years, China Overseas Ports Holding Company will get a 91 per cent share of the revenue, and the Gwadar Port Authority just the remaining 9 per cent. Although this is a 40-year BOT (build-operate-transfer) agreement, and technically different from a lease, Pakistan has still lost control of the port for the next four decades.
Pakistani officials have for now been able to reject a few demands of the Chinese but, as time passes and debt to the Chinese increases, that may change. Pakistan’s total external debt is around US$82 billion, and Chinese loans will further inflate this. It’s quite possible that, in the near future, Pakistan will be left with no choice but to hand over important assets like Gwadar port to China, even though the government of Pakistan rejects such fears.

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